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Your Business Is a Framework for Developing Value

Published on Apr 21, 2020 by Eric Lentz

What Is a Business?

Isn’t it common for something that is common to be difficult to explain in a way that a common person would be able to understand it? It is probably uncommon to use the word common in a sentence so many times, but I’m writing this, so the words used are entirely at my discretion. Isn’t this the attitude of a business owner? The attitude is that one can invent whatever one wants and shape the business in any way that one wants to shape it.

In doing so, a bit of the business owner gets embedded into the DNA of the company. This can then take on a personal tone for the owner. The owner starts to recognize the company as an extension of its founder. Like one deciding what one will do on vacation or on a free day like on a Saturday or Sunday, the owner can decide one day to do things one way and another day to do things another way. After all, given that the business is an extension of the owner, why shouldn’t the actions it performs on any given day be at the whim of the business’ owner?

Well, there are actually superb reasons why this should NOT happen! It all comes down to why a business exists. Does a business exist to be an expression of its founder, or does it exist to provide value to those with whom the business comes into contact? Well, of course, it is the latter. Let’s see if we can find a working definition of what a business is to help us through the rest of this.

Let’s look at how others define a business and decide if the common person will understand.

investopedia.com says that a business is:

An organization or enterprising entity engaged in commercial, industrial, or professional activities

They provide an alternate definition as well, but we’ll look at that in a moment.

Merriam-Webster says it this way:

The activity of making, buying, and selling goods or services

If I had to pick one of those, the last definition is the best, in my opinion. You get the idea that there’s something created that involves a buyer and a seller and that there’s some kind of product or service.

As I said, Investopedia goes on to provide another definition, which is:

The organized efforts and activities of individuals to produce and sell goods and services for profit.

Now we’re getting better. Not only do we include the ideas of buyers and sellers, but we’re also including a profit motive, but even more importantly, in my mind, it also says that we have, “organized efforts and activities.” Indeed, that comes much closer to what a business does.

Let me ask you, what are goods and services? What is profit? Aren’t these simply representations of value to their respective owners? Additionally, aren’t organized efforts and activities a way of communicating a set of steps, or processes or procedures organized into a framework of who, what, where, when and why a company does what it does?

Therefore, I would propose this definition instead:

Your business is a framework for generating value to employees, customers and owners

That’s it. That’s what a business does. A business doesn’t necessarily need to generate profit to be a business as indicated in the earlier definition. There are many start-ups, for example, that operate as a business for years before generating a profit. Your work doesn’t need to be an organized effort in order to operate as a business. In fact, I’ve seen lots of businesses that lack organization. That’s a key reason for the work I do; to organize businesses that lack organization.

A business has a framework, likely broken down into many sub frameworks, that allows it to do the thing that the business does. Owners might get value for the future potential they expect from the business, such as in the case of the startup example I gave. During that time, presumably, employees receive pay, and they are learning new skills and likely reaping other kinds of value. If the business has customers, those customers receive the product or service the business produces and that is valuable to those customers in some way. If it is sufficiently valuable, the customer will exchange money for that product or service, and the business will receive payment for their costs, plus an additional amount that will be recognized as profit.

A Framework: Planned or Unplanned?

I’m very concerned with defining things, as you might have already imagined. I find it helps a great deal in helping to understand a concept when we understand the definitions of the words used. So what is a framework?

Turning again to Merriam-Webster, one definition is:

A skeletal, openwork, or structural frame

It offers as an example, “An iron framework surrounds the sculpture.” This is exactly the depiction I’m looking for. A business has a sort of structural frame around which work occurs. This structure may get created purposefully. For some companies, a design for business operations gets developed and informs all the decisions about how the company operates. Changes occur with forethought and design and are rolled out with precision. These companies most accurately depict the iron framework surrounding the sculpture of this well-run company.

For others, no formal design gets created except for what the owner imagines at some point in time and then immediately implements. It isn’t documented, but one could argue it is designed. This lack of formality makes it very subject to variations that occur on a whim, often times, as I mentioned earlier, because it pleased the owner to do things differently on a particular day. This too is a framework, albeit haphazard, but it too informs the way the company operates.

Yet for other companies, this framework gets imagined day-by-day. Whether it is the owner or by the rank-and-file, the delivery mechanism for goods or services, or the sales process or the management approach may not be recognizable from one day to the next. This is more common for companies that don’t have a standardized offering, such as one developing a purely custom product. One might argue that it is impossible to have a framework under these conditions, but this simply isn’t true. Take, for example, a military. War is chaotic and confusing, yet there is a specific framework around which everyone operates. There are protocols and a structured hierarchy. This is not unlike a purely custom product, yet in the case of a military, there are very specific milestones within engagements and there are rules that govern the delivery of a response to the enemy when in battle.

Reduce Waste

So why is this important? The velocity of your company, the quality of the product or service getting delivered and its value to the customer, lies in the balance. A company that has a designed framework for sales, operations, administration and governance doesn’t necessarily optimize that framework, but it has a chance to. One can consider the as-is state and model a future state. That model can be tweaked until most of the waste gets wrung out of it. Waste comes in many forms. Generically, according to theleanway.net, waste is:

Any action or step in a process that does not add value to the customer.

Waste can include how a company manages its resources, such as in the cases of manufacturing or retail, when a company has too much inventory. This inventory can occur either through overproduction or having too many raw materials. This form of waste causes additional costs through paying for unnecessary storage facilities and unnecessary material handling which may occur. There is a net reduction in value to the customer because these costs need to be passed on to the customer and are passed along unnecessarily.

Waste can also be something as simple as motion. Requiring workers or machinery to move more than is required is a waste adding to wear and tear, slower velocity or both.

There are many others forms of waste not as frequently considered when looking at one’s internal products. Usually, one considers whether there might be an easier way to do something, such as automating, eliminating steps or eliminating tasks altogether. Consider though, that waste happens when a worker has to wait for something in order to finish a task. The classic example would be a production line where a worker is waiting for a piece before the worker can do his or her work. There are definitely parallels in the office. One completes a task and has to wait for some input before being able to start another related task. That worker has to switch to doing something else and this change in focus is often costly.

Some tasks may include work which ends up just being completely unnecessary. These tasks are those easily recognized time-wasters. An outsider or new company hire immediately questions such tasks, and when asked about it, long-time workers respond with, “We’ve always done it that way.” That becomes the justification for a task whose value is unknown to anyone.

What to Do?

So what do we do with this information? We start by recognizing that a business is a framework for producing value to employees, customers and owners. When we understand this truth, this gets us moving in a new direction, if we take it seriously. It gets us thinking about our business design. Is the business formally designed, or is it an ad-hoc creation? Is the design documented so that one can analyze it and notice areas of waste?

By looking, not just at the optimization of our internal products, but also at the interrelationships of one internal product to another, such that resources are available in a timely manner for workers who need these outputs of other’s labor and making sure we’re not producing too much of something or, worse yet, producing something that isn’t even needed, so by examining work more globally, like this, we can start to recognize areas where we need to refine the framework of our company so that we’re producing even more value, and often times, by working less.

Okay, so take a look at your company’s framework. Does it need some attention or is your company producing the most value it can because it is already an optimized and streamlined workhorse? It’s up to you. I’m only asking you to consider what is true.

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